What is the purpose of cash management in financial management?

The purpose of cash management in financial management is centered on ensuring that an organization has ample liquidity while also optimizing interest earnings. This involves balancing the need to have enough cash on hand to meet day-to-day operational needs while also investing excess cash to earn returns when it is not immediately needed.

Effective cash management allows an organization to manage its cash inflows and outflows, ensuring that there are sufficient funds available to meet obligations as they arise. This liquidity is crucial for maintaining operations and supporting strategic initiatives. Additionally, by optimizing interest earnings on available cash, organizations can enhance their financial performance and improve overall efficiency.

This dual focus on maintaining liquidity and maximizing returns reflects a comprehensive approach to managing cash resources within the broader context of financial management.